With his proposals to open currently closed off areas of the USA for oil production, John McCain seems to think that the problem is addiction to foreign oil rather than to oil per se. But a country that controls 3% of world oil reserves while consuming 24% of world demand cannot seriously expect to be self-sufficient for very long. Indeed, the 21 billion barrels of inaccessible reserves that McCain wants to open to production represent barely three years of total US consumption. Even if they were brought to the market rapidly, their impact would be temporary.

In fact, the Energy Information Agency, in a report published in 2007, concluded that “access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030″ and that “any impact on average wellhead prices is expected to be insignificant.”

Authorizing drilling in currently closed areas will not bring more oil to the market and will not bring prices down. Pushing it as energy policy perpetuates the hope that it is somehow possible to come back to worry-free times of cheap and plentiful oil. But this is by no means a distinguishing feature of John McCain: this is the real “third rail” of US politics, and no politician has dared touch it so far.

Similarly, his policies with respect to coal and nuclear are focused on the supply side rather than the demand side; but at least, in that case, his prescriptions can be implemented. Nuclear energy has become endlessly controversial, as arguments about what to do with the waste or about vulnerability to terrorist attacks are brought against those that point out, as McCain does, that it is an essentially carbon-free, relatively cheap power source. However, it is certainly possible to move towards a significant share of electricity generation coming from nuclear. After all, it took France less than 15 years to go from no nukes to 80% of its consumption coming from 58 nuclear plants — all using an identical US design provided by Westinghouse.

On the coal front, US reserves are also sufficient to ensure plentiful power generation for some decades; however such a policy would go against McCain’s professed goal to reduce carbon emissions, as carbon capture and storage is still a theory rather than an industrial reality and is likely to remain that way for many years. Moreover, nukes and coal are not — yet — substitutes for the main use of oil: transportation. Until plug-in hybrids or other electric vehicles become dominant — or people move massively to light rail — electricity will not be a meaningful substitute for oil. And coal to liquids technology is unlikely to ever be scaled to the current needs of US motorists, given the need for vast volumes of water in the process.

So, despite his claims to provide a break from the past, McCain’s proposals are stuck in the very same mindset he criticizes — the one that drove Hillary Clinton to push for lower gas taxes, Bush to call for renewed offshore drilling, or Obama to support coal production in the Appalachians: the fundamentally American notion that there is no limit to what one can do, and that solutions will be found by going for more, or bigger, rather than doing less or smaller.

But as the global scarcity of oil — that incredible, irreplaceable gift of nature which packs energy in a dense, easily transportable form — becomes more obvious, and as we need to increasingly fight with the Chinese and others for it, a revolution in our minds will be necessary to no longer take it for granted. It is a pity that McCain, whose description of today’s crisis is spot on, cannot take that jump yet beyond that minimalist $300 million reward for better batteries. That would make him a maverick — and a much needed one.

Jérôme Guillet is an investment banker providing project finance to the energy sector. He blogs as "Jerome a Paris" at the Oil Drum and European Tribune.

Click here to view the 34 legacy comments

Click here to hide legacy comments

34 Comments, 34 Threads

1.
freetoken

First off, kudos to PJM and to Jerome for a well written featured article on energy. Especially appreciated are the inline links to the data and information sources spoken of in the article.

Jerome has touched on the breadth of the energy problem and implied that solutions will be varied and development of those solutions full of complexities.

Unfortunately what sells best to a populace are quick and easy answers (e.g., “Drill Here, Drill Now, Pay Less”) that can fit in the space of a bumper sticker, even if reality dictates such answers are unreal. Many of the electorate will accept more nuanced and complex proposals, however this requires a politician both to be very honest and a very good communicator.

So far I believe Sen. McCain has done a decent job in positioning himself as the “Energy President”. He will need to keep on topic though, and not let himself wander. Much of what he says does not get a great deal air time and thus he will need to keep up the effort.

How McCain (or for that matter Obama) deals with the NIMBY blockades will be telling. The latest is the effort to prohibit exploration for uranium around the Grand Canyon effort. While there certainly are issues with nuclear that does not mean we should give up on the idea, especially the development of alternative reactor concepts.

What ever your views on energy are I think there is one overwhelming consensus, and that is we (the world) are increasing energy consumption as energy production is lagging behind. Emerging nations are increasing production and nearly all resources are in particularly high demand. But what does that mean for us Americans? No one knows for sure but it is undoubtedly going to change the way we are currently living. To the degree, I’m not sure but and article I was read a day or two ago called Oil Defies a Correction and it talks about the cause of oil prices, how if effects production, and how that in turn effects our lives. It also gives a prediction from a Harvard graduate on our future. I hope this article is as thought inducing for others as it was for me. I’m not saying its right or wrong but does bring up a lot of very valid points that should be addressed by all Americans. Thanks, let me know what ya’ll think.

Mesquite 1, that is an incorrect statement. PJM is not writing here. This is an article, as are all ours, by an author. If this were :PJM Energy Policy we would say so. This is the opinion of Jerome Guillet.

Kevin wrote: “Your facts are misleading. You should replace “decades” with “centuries” “.

What you are missing is the little disclaimer (which is also included at that site you linked) – “at current rates of consumption”, which is important.

If you want to radically increase the use of coal (such as in a coal-to-liquids program to replace imported oil) obviously the rate of coal consumption would go up greatly, as would increasing electricity production by use of coal. That higher rate of consumption would mean the resource would last for fewer decades.

At current rates of consumption…. There is plenty of coal for coal-to-oil and there is plenty of oil to be had as well, enough for centuries. Estimates range from 800b to nearly 2t(as in trillion) in oil shale and sand, or roughly 10 times what Saudi Arabia has, let alone the billions of known standard oil deposits.

For coal, we can convert many facilities to nuclear and use the plants for coal-to-oil(the plants would utilize the production of hydrogen to heat the coal for liquefaction, and can also produce hydrogen for fuel cells. If you replace 2 coal facilities with one large nuclear power plant, you can use the coal intended to run the plants to go to liquefaction for fuel. That would be a progressive solution. There is centuries of fuel to be had if we were allowed to get it.

Thats coal for oil/fuel and NOT electricity, I hate that We can’t edit the posts…. We already have the infrastructure to mine and transport coal, just find a better place to send it.

Between all of those sources, stop paying farmers for lousy corn ethanol and move to the much more efficient sugar cane and beets crops. We are paying billions of taxpayer dollars for ethanol now that is literally no where near worth its weight. There is no energy shortage, just an intelligence shortage.

And one more in regard to refineries, here is one of the major problems(and again residing in stupidity), is environmentalists attempting to block Chevron from lowering pollution(while increasing capacity). The most dangerous pollution we have in this nation is the lack of intelligence stuck in a cloud of self-righteousness.

I think the distinction that the McCain would make is that the prices will be enough to control the demand side of the equation. Already we’re seeing a steady move to mass transit, car pooling, less frivolous driving, etc. (See the average road miles by Americans as it declined over the past 6 months for the first time in 28 years).

Government can incentive the supply side and that’s all it can really do well in this situation. McCain has a good start on this and, despite the accusations of the proposals being gimmicks, each proposal addresses a facet of the problem.

A major problem with McCain is that he changes positions so frequently that his words lack credibility and his policies are often incoherent and lacking in detail.

Flip flopping McCain was one of the few Senators who voted against the monumental Energy Policy Act of 2005, basically written by Cheney. This was a valuable piece of energy legislation, but, Senator McCain voted against it without offering any alternative or compromise. And, btw, Cheney recommended that the US adopt the goals of the Kyoto treaty on a voluntary basis. And, he suggested that Congress seriously consider the nuclear option.

McCain also voted against the Energy bill of 2007 (Obama supported this Cheney bill) that gives incentives for companies to develop and implement “horizontal” drilling technologies. This is exactly what is needed to for huge oil deposits like the “Bakken formation” (3-4 billion barrels according to a recent USGS study).

McCain voted against SAFE (Securing America’s Future Energy) Act of 2001. This bill was intended to “enhance energy conservation, research and development and to provide for security and diversity in the energy supply for the American people, and for other purposes.”

And most damaging was his recent run at a cap-and-trade policy that would have wrecked our economy. You said that “This is another politically-savvy change from the current administration, given that overwhelming majorities of Americans agree with him on this.” I have to disagree in pointing out that the Fox poll you cited is entitled “Most Americans Believe in Global Warming.” This does not mean that most Americans agree with a cap-and-trade, in fact, I think the majority of Americans are strongly against such economically damaging policies.

McCain is, and has been out of touch with the issues. He is the worst possible GOP candidate and if elected, he will do the one thing that excites his passion and interest – conduct war.

It’s time for Americans to choose whether we want the Sierra Club or our basic lifestyle. We can’t go along with radical strictures from extremist green activists and still afford to drive to work, let alone anywhere else. There are billions of barrels of petroleum in the U.S. that are untapped because the Congress has placed a moratorium on rulemaking for extraction of oil shale, which has been estimated to be available for about a third of where the world market for oil is now. Yes, this won’t help right away, but that’s not a reason for failing to start.

We have fiddled too long while this crisis was building, because the press was unwilling to differ from green orthodoxy. All the objections to exploratory drilling in ANWR are bogus. It’s a flat dreary marsh full of mosquitoes when it’s thawed and a frozen desert the rest of the time. Even the natives want us to drill there.
It won’t solve the main problem, but it will help while we’re building nuclear power plants and while we’re creating a new industry with thousands upon thousands of jobs in the oil shale areas.

Ultimately, I seems to me that the most sensible energy of the future is electricity, but the technology for cars that will replace what we expect of our gas powered buggies is still too expensive. The government doesn’t need to offer any gimicky prizes. The ones who develop the battery packs of tomorrow will get more than $300 million in stock options. We’ve got the distribution system mostly in place, but we need more transmission lines and more generation capacity because we haven’t been building them as needed. NIMBY and environmental lawsuits and lobbying again.

We should be exploring clean coal, since it’s one of our cheapest, most abundant fuels. We should be licensing new nuclear generators, and all the rest–another Project Apollo, but we should also be noticing that Cheney’s dictum was never more true than when applied to Al Gore and many other so-called conservationists who freely jet around the world attending Global Warming Conferences.

Consider the environmental community’s reaction to Planktos, Inc.’s proposal to fertilize plankton blooms in the ocean by releasing iron particles. I’m not saying the plan was necessarily a solution, but it deserved to be studied and encouraged as a relatively cheap way to remove CO2 from the atmosphere. Instead it was treated as if it were a return to whaling for oil and ambergris.

Thanks, Mr. Guillet, for bringing some hard headed reality to the discussion, because all we’ve been getting so far is denial and pretend.

Oh dear, how depressing. What a Hobbsean choice America faces: An aging, nice but wishy-washy liberal (poor guy’s so confused he thinks he’s a Republican) and a mendacious extreme left charlatan. Rocks and hard places spring to mind. It’s very bad news not just for the US but the whole world. How on earth have we ended up with the present bunch of clueless world leaders at such a time of extreme danger. In fact the only leaders who seem to understand how History works are those seeking America’s destruction. Now, lambs and slaughters spring to mind.

Even so there really is only one rational choice: McCain. Which is why, with irrationality in the political ascendancy, I fear it will be the catastrophic Barry 0. Heaven help us all.

Actually the solution is so simple. Occupy the oil fields. That way you’d kill several vultures with one stone. Results:

1,Secure energy supply.

2 Utterly defeat the Jihadi states and their proxy terror groups who have no other source of income.

3, Grab other potential enemies, Like China, Russia and the EU, by the short and curlies and force them to behave.

Really think about it. Total victory in one bold stroke and a piece of low-casualty cake for the US military to take and hold the barely populated desert. Afterwards, America could afford to be magnanamous and say; “OK, now would you like to talk?” ……I know, dream on.

let me see if I have this straight.
1. We should be the only country on the planet to not use existing natural resources to fuel our energy needs because it might diminish our quest for some alternatives.
2. Cap and trade is for some reason a good thing – presumably because it raises the cost of everything, making us less competitive and thus gives us an incentive to search for alternatives.We should ignore the fact that this puts billions in the hands of our political elite to “invest” wisely as they have done with ethanol – creating no energy but facilitating global hunger.
3. We should substantially reduce our standard of living because it will save some fraction of a degree in warming some 50 years out. I guess that we should ignore the fact that there has been no warming this decade.The fact that this negatively impacts most the poor and those in rural America is irrelevant versus the greater good.
4. We should ignore the positive impacts of national energy exploitation on the economy,employment and security as this is clearly not in the common good.
In spite of your reasoned article, I remain very substantially unconvinced. In fact I believe this approach to be an excellent recipe for economic suicide.

By the way, glossing over the informed opposition or questioning of the global warming theology is just plain dishonest.

I take a great pride on McCain to push for issues which are never main topic of Obama’s speech.

What McCain pointed out are bullet points. Never in a speech you can talk about the details. Well, the Devils are in the details, so to speak.

But it should not be McCain’s task as a national leader to the draw up the details. In economic sense, it should be the end-users, the American people, who must provide the details.

1. On nuclear power. Definitely, we should invest in alternatives, not only on production side but also on the disposal side. We need clear discussions on this, to discuss property right issues. NIMBY issue is I think a valid issue because it is indicative of inherent practicality, both safety and economics. Collective discussion on this option will give us a better plan on HOW TO DO IT.

2. Oil Drilling. Obviously, Obama’s frame of 6 years is not accurate. That is justifiable because he is a lawyer; totally not within the business. But I tell you what… even in 2 years results can already be achieved. If right incentives are given. Norwegian and Canadian technologies can be transferred here using the framework of capitalism, where America was once a champion of (America’s strong labor unions now undermined capitalism – in mixed economy K & L are enemies and not independent inputs of production). This is the problem with Obama’s rebuttal. He is already talking about details, not policy. McCain is not referring to Obama as the driller. Obama should shut up instead.
Oil drilling has a profound economic implications: jobs, energy independence, supply relaxation, etc.

3. Lowering Tax on Oil. The article says that higher Oil price will lead to greater consumption. That depends if petroleum products are price elastic. Last time I looked, this is not very elastic. You still continue to use your car. There are still traffic on the street. Conclusion: FALSE claim. Tax cut will relieve everyone – gasoline is indirect input in the overall value chain of almost all goods due to transportation costs.

NOTE: Arguments on electricty and coal (electricity, steel production, etc.) follow almost the same argument.

4. Use of Renewables. McCain’s policy is balanced, for one. Renewables should be tapped whenever economically feasible. Everyone knows the limits of renewables. Ethanol has to be mixed with gasoline/diesel to run. Pure ethanol engines will be TOO HEAVY AND COSTLY for you. Wind and solar PV are intermittent. You don’t want 24-hour wind and daylight. When it comes to grid, they require support (called ancillary services) which are provided by mainly by oil-fired gas turbines. Conclusion: 100% Renewables is far-fetched.

5. Cap and Trade. Cap-and-trade can be politically possible. You know many states are now practicing Renewable Portfolio Standards. Technically they involve premiums to renewables and certificate trading is also involved. Level of allowance (i.e., cap) has to be decided and discussed. AMERICA HAS BEEN DOING THAT SINCE 1990s.

6. Global Warming In General: You’ve been telling about energy conservation. But we human beings and animals (most of which we eat) are releasers of Carbon Dioxide. To control global warming, you must control population, the main reason for the same. Population and energy use are directly proportional. America Both are indicators of Economic Growth, particularly the much-talked about GDP as used by Democrats. IF DEMOCRATS WANT TO REDUCE GLOBAL WARMING, LET US START MAKING OUR GDP GROWTH AS NEGATIVE. Will you sacrifice for that?

As Obama said: Leadership in Global Warming. HE IS ASKING US TWO THINGS:

2. REDUCE YOUR NUMBERS. This is consistent with Obama’s policy of abortion. More terrorism attacks, which is the same as doing nothing and appeasing the terrorists, is also consistent with this direction. But Blacks and Latinos are the fastest growing races in America. Their proportions are steadily increasing. Can Obama focus his policies on these races? Note the major consequence of reducing populations: It will make your country weak. Population is a strength especially nowadays. Arabs and muslims are growing.

Final Word:

DEMOCRATS’ ENERGY STANDS ARE THE REASONS FOR AMERICA’S DEPENDENCE ON ARAB OIL. BACK IN 2002, BUSH OFFERED THIS THE CONGRESS BUT BLOCKED BY 100% DEMOCRATS AND 10% REPUBLICANS.

WHY NOT ADMIT THAT MCCAIN MADE A GOOD SPEECH. HE’S BECOMING A TRUE REPUBLICAN.

WHY REPUBLICANS ARE ALWAYS CORRECT ON ECONOMICS? BECAUSE THEIR PRINCIPLES ARE CONSISTENT WITH ECONOMICS – PURE MARKET ECONOMY AND LEAST GOVERNMENT INTERVENTION LEAD TO MARKET EFFICIENCY. MARKET FAILURE MUST BE ADDRESSED THROUGH OUTPUT-BASED wealth transfer for those who are willing.

OBAMA’S GREATER ROLE OF GOVERNMENT SPECIALLY IN TIMES OF RECESSION IS WRONG. IT WILL CAUSE GREATER INFLATION AND WILL NEVER ALLOW MARKET TO SELF HEAL.

This article echos the typical chicken little syndrom of the greenies! Do nothing, and even worse, lets go back to the stone age! All the politicians wring their hands and do NOTHING. If you are not part of the solution, get out of the way. We need more oil, the world lives on oil, and if you do not know that you are just plain ignorant! The idea that using all our assets won’t affect the current price of oil is ludicrious! The market will immediatly respond and we can bring it on line much quicker than the “Know Nothings” whine about. This article is not about leadership, but about cowering in the corner and sucking one’s thumb!

There is not now nor ever has been any man made global warming and since 1998 not even any warming 8man made or otherwise. Furthermore over the last 18 months the world average temperature has been cooling much faster than it ever rose during the entire 20th century. Don’t believe me, go check the NASA climate figures. MMGW was never anything other than lefty propaganda. So stop with the baloney already, pleeeeaaase.

DON’T BELIEVE THE HYPE!!!

Climate change (formerly known as weather) is mainly caused by cyclical fluctuations in the energy output of the sun. The reason the planet is cooling for the moment (yes, cooling) is due to very low sunspot activity.

Seventy percent of oil use in our country is driving, up from 50% twenty years ago. Most of it is commuting. Most commuting is 30 miles or less. A plug-in hybrid vehicle, like the Chevy Volt, slated for production in 2011, will move most of this power consumption from gasoline to the electrical grid. Toyota is racing GM to market with a plug-in second generation Prius. You may see a 50% reduction in US oil use seven years after the Volt and it’s competitors are introduced, since the grid isn’t oil-dependent, and since Detroit only builds cars which last seven years…I guess that’s good.

This moves automotive power to the grid, which is currently 51% coal, 18+% nuclear, 20% nat gas, and some hydro. Now if you don’t like dumping Carbon Dioxide into the atmosphere, then start repacing the coal and nat gas plants with nuclear generation.

By the way, you should probably start beefing the power grid. Since the Prius and Volt are hybrids, you will still be able to drive long distances if you need to. With regenerative braking, your mileage should be pretty good.

In criticizing McCain’s proposal to drill for oil in the US, Jerome seems to imply that addiction to US produced oil is no better than addiction to imported oil.

“With his proposals to open currently closed off areas of the USA for oil production, John McCain seems to think that the problem is addiction to foreign oil rather than to oil per se.”

Why? It looks to me switching to locally produced oil would be a very big improvement and a first step toward breaking our oil addiction. Locally produced oil will send less US money over to all those petro-tyrants overseas. The new profits made by oil companies on locally produced oil can be taxed to fund research and alternative energy infrastructure. Also, It will have the side benefit of reducing our trade deficit – last I checked that was still a problem.

Americans were always the big thinkers and the optimists and because of that America changed the world, politically, technologically and economically – yes, for the BETTER. Not anymore. After decades of elitist environmental politics, law-fare and propaganda. America has been gradually feminized by these know it alls into believing less is good and thinking big and taking big risks is a peculiar American “cowboy” disease that needs to be eradicated. One can even sense that in your post.

Garbage from a left wing servant of the left wing plutocracy:a Soros lackey.This proves that not only do we need to drill, go nuclear, and use coal. But that we need to smash the banking plutocracy, which makes money from selling out the US. We are not addicted to oil;Oil is as necessary for a healthy modern economy, as oxygen is an “addiction” for living things. Fortunately, when gas hits $8/gal, the American people will recognize virulent frauds like Guillet for what they are:Servants of a globalist plutocracy, that wishes to impoverish and control the average person,so that they can live out their environmentalist fantasies. Fortunately,rope is cheap and plentiful,and so are environmentalists,and if Guillet gets his way,a new use will have to be found for blacked-out lampposts.

We are gradually running out of non-renewable fuels like oil and natural gas, and even coal and uranium. Any solution that fundamentally rests on using those resources up even faster is flawed.

Nobody wants to admit to the people that in the future, energy is going to cost more, a lot more. So, politicians are taking the low road instead and pretending that they have fixes. They don’t have fixes.

Eventually the free market WILL take care of this problem but it will be much more painful for us in the USA than it will be in some other countries with more responsible governments that have been taking action for decades to reduce energy consumption.

Nate:New oil and uranium discoveries are being made;old known deposits of oil have been placed out of reach by environmentalist fanatics,who also oppose nuclear power.I do think that the US could do a far better job of conserving resources;for example the SUV obsession needs to end even if it means imposing stricter CAFE standards.However, without new drilling/exploration and going nuclear, (as the europeans have done) we face a cold ,impoverished,economic future, which no American will tolerate.The American plutocracy can afford $8 dollar/gal. gas.The rest of us can’t.